Speaking of intervention, the ECB got the choppers out yesterday, airdropping 94.8 billion in Euros onto the continent. The Federal Reserve announced they are "providing liquidity to facilitate the orderly functioning of financial markets."

Overnight, Fed Funds Rate had spiked towards 6%, and now after the 2 liquidity injections, are back to the 5.25%overnight lending rate that is the Fed’s target. Rumor has it that the recent ECB & US Fed injections are now bigger than GDP of Argentina!

~~~

A survey from the WSJ found almost half — 44% — of respondents want a rate cut. (So much for free market economics!)

Are people truly that naive? Do they not understand what rate cuts will do the U.S.Dollar?

Then there is the concept of Moral Hazard. I am int he camp of WIlliam Poole, who has stated that speculators in these markets need to absorb their losses themselves. A rate cut that causes inflation is essentially a "cruelest tax increase."

Bigtime agree on the “moral hazard” argument. Cramer’s rant just made me think: you guys got yourselves into this mess, you guys make the massive, exhorbitant wages, you guys bit the bullet and take the consequences.

A rate cut that causes inflation is essentially a “cruelest tax increase.”

Hello! The Fed’s job is always and everywhere inflation creation. The system “systematically” makes the great majority of people poorer while enriching the few. Without the Fed and with a truly free market monetary system, prices would slowly decline over time, improving the standard of living of everyone.

Amen Barry on all your points. $35 Billion in repo actions today with all of it being in MBS paper should do nothing to calm anyone’s nerves except the speculators who gamed the system to make hundreds of billions of dollars. Market efficiency is out the window, and has been for quite awhile. The elites will once again be saved while the little guy who took it in the shorts with these exotic mortgages will be wiped out. PATHETIC!

Regardless of either outcome. This system is dying. Its unsafe and unstable. At some point the public will figure out and want change. Is anyone suprised that precious metals are up today? Maybe thats because there are trillions more dollars at work?

The biggest threat to cash is the brokers insistence (ala Morgan this morning) calling for a rate cut THIS month.

If that is allowed to happen I cannot imagine what message other countries will take from that—I know what they will do (and most of you do as well) but how do you sell that many dollars and bonds at the same time???

That’s panic…….right after the euphoria induced melt-up it will cause here.

i accept that justice will never exist in any system created by humans.

things are always done by administration with short term in mind. For now….the most important thing is the next presidential election.

I do not think governments care about inflation as long as they dont have to pay for it….i think they may even not care if they have to pay for it….since its paid with borrowed money, not like they are going to cut their other spendings.

current government all over the world do not want the economic growth party to stop…..and they will inflate things 50% if that will help things look positive.

lets say we are the US administration, and we want people to be employed, we dont want economy to tank and we dont want people to lose their homes (which they are not able to afford).

if we cut the interest rate all the way to say 1% or 2%, USD is going to tank, which means nobody will like USD as a World’s reserve currency, means in future we may have to pay with stuff instead of USD for stuff we import.

but Oil producers are going to just dump USD for trading, unless we let them raise the price of oil as per the decline in dollar (very simple to do since most oil operations involve us oil companies, and us oil companies are very good friends of administration).

the other problem with 1% rate, is inflation……not a problem of current administration….that a problem for future administration….most likely a opposition party….whom we are going to setup for a failure.

so in summary…cut the rate and let things inflate….let the dollar tank. and the party goes on……. am i wrong? i am sure there are more variables than i can fathom, please correct me?

This desire for a rate cut comes on top of the fact that many petro-dollar countries and emerging market countries that hold a significant amount of US debt already have negative real interest rates (inflation > central bank lending rates)!

When things start to re-adjust, no matter of intervention may be able to help.

ultimately in this cycle (whenever it ends), I believe that it will be the sovereign wealth funds that buy at the top of the market.

the central bank liquidity + sovereign wealth fund money that finally sees some “value” in global equities will support this market like in 1998….we’ll have a genuine blow-off top come next year (fortuitiously around the summer olympics?).

of course this can be totally wrong…my little black box says that it’s ok to hold over the weekend…hahaha.

You are correct in that they do repo’s however the reverse repo’s are certainly not done at the same clip as the originals.

We seem to have some overall disagreement as to what is actually done with that money once it is delivered. But you are correct.

As far as the other question from gn…….it amazes me that people think the whole operation is somehow devoid of any activity that is below board. Taking in that sort of paper is a relative thing. It all depends on your interpretation of it. But you are correct to be just as disgusted with that as I am.

OT: whoever covered into that (rally) needs to find another profession…..or just send me your money-LOL

as long as you keep getting more debt you do not default….so of course people who are getting the molaah from fed has to pay back after a period of time….but who says that they will not get more moolah in future.

its not like the government is scared of losing its hard earned money (they can create $35-$100 bil in 20-30 mins)….just few key strokes.

and for the financial companies chiefs…taking all these and investing as per consensus…..who cares whats going to happen after two years….right now they are on the verge of losing their job.

The E.C.B. injected another 61 billion euros ($84 billion) into the banking system, after providing 95 billion euros (130b US) the day before.

It was the largest injection since the €69.3 billion euro move the day after the Sept. 11, 2001, attacks

The Federal Reserve today added $19 billion to the system through the purchase of mortgage-backed securities, then $16 billion in three-day repurchase agreements. The Fed on Thursday had said “that it would provide unlimited cash if necessary, and the Fed pumped in $24 billion”.

So say one saw this coming (reading this blog helped a little) and is now sitting largely on cash. I was thinking about going into gold/uranium/commodities to secure the current value. Is there any downside to this that I’m not seeing?

While the liquidity engine has been seizing up and central banks have been throwing money at it to get the gears greased again, the primary cause has not been resolved yet.

Mortgage-backed securities, CDOs and the like are still being shunned because no one knows what their true worth is! Until these markets start becoming more liquid, no amount of rate cuts and liquidity injections are going to resolve the problem and may even go as far as aggravating the issue.

If the Fed cut, it will effect the dollar deeply. Currency markets will have to start pricing in a Fed that cuts to bail out speculators, it would start a crises of confidence amongst some overseas holders. Why hold dollars when their value is constantly debased. Why invest in US stocks for that matter, its great deal of angst for no real return.

I have wondered why Gold does not rise with all the uncertainty but I’ve heard that several CB’s(including the country of Spain) are just dumping gold out the windows to curtail it’s own housing problem. That is it’s answer to the helicopter syndrome currently afflicting the world at present.

Fred – this fear makes a good entry point for some tech, which shouldn’t be too affected fundamentally by the current mess. AMD had no trouble securing loans at the lowest interest rate they’ve received in a while.

I’m considering undervalued plays that have a turnaround story. MOT and AMD come to mind, as do small-caps like CRNT and IMMR. I don’t know about AKAM and LLNW, they seem oversold but I’m afraid that CSCO will develop new products that push CDNs into commodity territory.

Barry, have you thought about having “sticky” message boards to allow side-discussions like this without polluting the current topic?

Okay, here’s my version. Price is a probability function governing all possible histories over time between transactions involving actual buyers and actual sellers. That probability function collapses to near certainty if (and only if) price is observed directly (transacted at the intersection of actual demand and actual supply).

In the current environment, “strong” holders (those long volitility and liquidity) and purposely feeding an environment wherein they are able to influence perceptions of the probability function such that “weak” holders are forced to go to market with holdings at once, while at the same time withholding their ultimate demand, thus creating a somewhat self-reinforcing downward pressure on price.

In this instance, the strong are the world class investment and money center banks, and the weak are hedge funds. Once the strong have their fill of their choice of assets at their choice of price, this “crisis” will appear to pass. The strong will then (slowly) unload the assets, beginning the cycle anew.

[Eclectic] “Well, punk, are you feelin’ lucky?… You gotta be askin’ yourself… will it be 3 that does the trick or, will it take more?

To be honest with you, I’ve kinda lost track myself in all the excitement. But, bein’ that the discount is like a .44 magnum, the most powerful handgun in the world, and it’ll blow your head c-l-e-a-n off, the question is: are you willing to risk it?

As it related to the helicopter drop…. I thought that I heard on CNBC that, the Fed HAD BOUGHT CDOs…..????? If so, how did they price them…. and is it legal…. I really can’t belive that… Sounds very THIRD WORLD….!

Also just to correct you, it’s not exclusively hedgefunds that have gotten caught up in this fiasco… I France it was pension funds and in Germany, it was a, excuse the language, a FUCKING MONEY MARKET FUND….!

We have been exchanging thoughts on these types of scenartios for a long time, but, I mean really, who do we have out there running these investment banks, a bunch of drunk teenagers…..?

Someone is going to make a killing on all those CDOs being sold for pennies on the dollar. Sure those CDOs are worth far less than par. But, are they truely worthless ?

On another note, most of the big banks have been purchasing instruments to hedge themselves against CDO losses for quite some time. They are going to make up losses on CDOs via these hedges. This whole subprime contagion is being overblown. Its amazing how sentiment swings from one extreme to the next. Cramer and his nonsense about 7 million Americans going homeless. Thats total BS. No more than a quarter of those 7 mil will actually loose their homes. Banks and mortgage companies will work things out. It always happens. These people are no fools. They can’t afford to be sitting on hundreds of foreclosed properties. There are so many mortgage loans available to save these people. The whole market is smoking crack. This panic is overdone.

I think a cut chance is 50/50… way lower probability than the market is assigning.

Essentially banks had already ratcheted a “de-facto” discount rate to approx 6, with competition for limited good federal funds.

Open market activity of the Fed has simply attempted to return to target 5.25, and they may just pull it off without having to target lower rates formally.

BTW, nothing I have written, including my mea culpa about Cramer, means that I’ve advocated bailing any equity interests out of any failed asset pricing, stocks, houses or anything else.

The Fed’s responsibility is to facilitate liquidity, not to cover losses.

Actually, the most reasonable voice I’ve heard recently doesn’t really involve bailing anybody out… but rather involves reasonable reviews and work-outs of individual situations. Those are the two parties that, together, should share the losses on some relational basis. That was said by Donald Trump, and he’s making a lot of sense.

I hear you Estra however methinks people are going to be very cold waiting for that to happen any time soon….the time frame for anything like that just got pushed (pun intended) out a bit far to make it worth the expense of watching it be worthless day after day…..in that sense we are only seeing the top of the “turd” so to speak.

First, everyone calm down. Obviously, Armageddon is well contained now, couldn’t you just feel the relief when George Bush made a unneccessary news conference to tell us how good things are, just like he’s been telling us how great things are going in Iraq.

I personally am entertained watching idiots who took stupid risks go down in flames, and bailing them out with a rate cut seems counterproductive to that goal. Until their scorched bodies start landing on our heads, I feel no need for action.

This has been a minimalistic action Fed, and methinks Ben will do the least possible to resolve the situation, as opposed to Wall Street, where the whining through this should be maximum.

The Fed’s job is to steer the good ship Economy into safe waters. If certain passengers are voluntarily jumping off the gangplank, turning the good ship around to rescue them just detracts from steering the ship. Goldman overboard? Sail on, Captain Ben.

Barry, I know you could care less about what I have to say most of the time as I can’t fine half my posts on your site any more. lol

But seriously about this I know you are shocked by what people want in the economy. How can they want a rate cut? Are they idiots?

My answer is yes and no. yes they are idiots in the respect that they want lower rates which will cause the dollar to become devalued and asset prices to go up. If you let them have as much as they want what will happen is a hyperinflative economy. The end result is they will price everything out of their reach including their jobs as everything will quickly outsource itself. But it is not due to any self destruction that they want this. Its a natural need of a boom bust cycle. You cannot have a boom and then a soft landing really. I never agreed with Greenspan in regards to this opinion of his and now Bernanke’s.

What happens is busts clean out the risk takers. It instills a solid pessimism in the society that puts them in distrust of speculation. 3 years of bust is not enough to do that, it must be generational in length. More US citizens are in the market than ever. Indirectly through funds or 401ks. Sure its not the poor or impoverished but they are rarely ever contributers to the markets.

The reality is that the end result will be a hyperinflated economy that will bust and bring it back to the normal. Then the US can work to pick itself back up again and everything will be rosy. So by allowing the US to be greedy, it will self inflict a punishment for that greed. A lesson will be learned and greed will be suppressed for a generation or two.

Eclectic, I’d say the odds are 50/50. But, there’s only a 10% chance of that.

>> How can they want a rate cut? Are they idiots?

Anderl, most people on this board ask the same question. I think “self-interest” explains it entirely.

The most important thing is to keep the party/salary/bonuses coming. (Who wants angry investors to sue you and remember you for life?) After that, it’s easy to convince yourself everyone else in the world will do just fine. Indeed, one can argue — and they do! — that keeping the game going will also “trickle down” to the lumpen “homeowners” to avoid some foreclosures. (Never mind that direct bailout — if that’s what we want — or a govt-led legal action against reckless lending would be more direct to the lumpen.) So, it’s “a good thing” to enrich these rich financial daredevils.

Finally somebody’s talking about the impact that a Fed rate cut would have on the U.S. dollar. Nobody seems to be concerned about this as the Talking Heads seem to feel that it’s the Fed’s obligation to bail out the professionals who seem to be unable to learn from history.

And what about that other dirty little secret – the steady rise of headline inflation? Forget the core number, because food and energy prices aren’t going down anytime soon.

We have been exchanging thoughts on these types of scenartios for a long time, but, I mean really, who do we have out there running these investment banks, a bunch of drunk teenagers…..?

When you know in the back of your mind that the Daddy Warbucks Fed will ultimately come running every time you crash the family car it is in your best interest to drive it with only a regard for the gas pedal.

If these clowns were truly accountable for their actions then they would drive with a lot more regard for the brake. Many of them come into the industry not even knowing what a brake pedal is

Amusing cartoon, via Jim Sinclair: What’s so amazing about this is the following: When the inter-bank rate, set by the open market (but based on the Fed Funds Rate) surges 75 basis points above that Fed Funds Rate, what else can the Fed do but warm up …

I am not sure a rate cut is going to kill the US dollar. First of all FF futures are already pricing in the cut. Second, the US economy is not the one to worry about. It is flexible enough to recover quickly from recession. Rather these red hot economies like China, India etc are more likely to suffer real crisis. This would be a positive for the US dolllar. It has always been a safe haven. Plus you need to realize that much of the dollar decline will be absorbed by the foreign suppliers. They will have to lower prices and trim margins to keep their economies from collapsing. There are many different China’s who can supply the US consumption machine but only one US consumption machine. That won’t change for decades.

The “cruelest tax increase” is simply a myth. Inflation hurts the investor class (the savers) much more the poor debtor class. The 1970s were actually a good time for people like my parents who had little savings and were able to get a mortgage on a house. The inflation of the 70s made their house worth more and made the fixed mortgage payments a smaller portion of their salaries. I am not talking about hyperinflation and currency collapse (so please don’t flame me about that) but rather a milder single digit inflation. It’s not so bad for regular people as long as wages keep up with consumer prices.

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